International Journal of Economy, Management and Social Sciences, 2(6) June 2013, Pages: 277-284

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International Journal of Economy, Management and Social Sciences

ISSN
2306-7276

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A Study on the Impact of Quota Removal on the

Textile and Clothing Industry in Karnataka State
Ramanna Shetty 1, K.B. Kiran 2, Mihir Dash 3
1,3
2

Alliance University, Bangalore, Karnataka, India.

National Institute of Technology, Suratkal, Karnataka, India.

AR TIC LE INF O

AB STR AC T

Keywords:

The textile and clothing industry in Karnataka is concentrated in Bangalore, which houses some of
the largest Indian export houses. The abolition of the quota regime under the WTO in 2005 has
opened up the global textiles and clothing arena for exporters in Karnataka, with its adequate raw
material base complemented with state-of-the-art infrastructure facilities and skilled manpower
supply.

textile and clothing industry

quota
WTO
MFA
Opportunities
threats

The paper studies the perceptions of exporters in Bangalore towards the opportunities and threats in
the post-MFA global textile and clothing trade. The data for the study is collected from a sample of
one hundred export-oriented textile and clothing units based in Bangalore through a structured
questionnaire.
2013 Int. j. econ. manag. soc. sci. All rights reserved for TI Journals.

1.

Introduction

The textile industry occupies an important position in the industrial landscape of Karnataka by way of its contribution to industrial
production, employment generation and export earnings. It is next only to the agriculture sector in terms of employment generation. The
textile sector contributes 0.50% of the GDP of the state, approximately Rs. 1,00,000 crore in value. Karnataka accounts for 20% of the
national garment production. Bangalore is also known as the Garment Capital of India, as the preferred destination for garment firms.
Garment exports from Karnataka occupy the 2nd position in terms of value of exports from the State, next only to Electronics and
Computer Software. The quantum of garment exports has increased four-fold from Rs. 1024 crore in 1995-96 to reach Rs. 4000 crore in
2001-02. Provisional estimates put the value of garment exports at Rs. 6773 crore in 2006-07. Although Karnataka enjoys a significant
share (32%) of the domestic apparel market with over 1500 apparel units, there is further significant scope for expansion of apparel
manufacturing activities in the State. The main competitive advantages offered by locating textile industry in this state are the presence of a
large pool of labour and key raw materials. Raw materials needed for the textile industry are abundant in the State:

Cotton is cultivated in about 5.5 lakh hectares of land and the State produces about 6% of the total cotton produced in the
country.
In sericulture, the State leads as the producer of 65% of Indias raw silk.
Karnataka is among the largest wool producing states in India, contributing 12% to the national figures.
The State also has infrastructure support in the Apparel Parks across the State. Apart from the current park in Doddaballapur,
proposed locations for Apparel Parks include those in Bellary, Davanagere, Ramanagaram, Belgaum, Gulbarga, Rabakavi
Anahatti, Bagalkot and Mysore districts.
Land with infrastructure support is available in KIADB Industrial Areas 545 acres have been allotted for garment
manufacturing industries by State Level Single Window Clearance Committee/ State High Level Clearance Committee. These are
fully supported by roads, water, power, common effluent treatment plants, telecommunication networks etc. by KIADB While
there are more than 70 large and medium firms operating in the textile industry in Karnataka, there are more than 50,000 firms
that qualify under the micro, small and medium category in this Sector, the largest segment under MSME Sector in the state. As
per the data provided by ASI, there are total 3.86 lakh manufacturing units engaged in Textile and Garment Sector at the
organised and unorganised level. Textile units are spread across all districts in the State, with Belgaum, Bangalore and Gulbarga
districts having the highest concentration of textile production units.

Karnataka has a large pool of skilled human resources - with the third largest strength of engineering graduates, the State also has many
reputed higher education centres and research institutes creating the capabilities required by the textile industry. One of the reasons global
companies approach India is for the highly skilled and low-cost manpower. India has a large pool of skilled engineers capable of matching
international standards, with a capacity to generate more than a million graduates every year. Karnatakas share of engineering degree and
diploma holders is 10%, the third highest in the country after Andhra Pradesh and Maharashtra.
* Corresponding author.
Email address: rshetty@alliacne.edu.in

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The State Government has formulated its State Textile Policy, Suvarna Vastra Neethi 2008-13, with the objective to strengthen and develop
a dynamic and growth-oriented Textile Sector in Karnataka. The policy aims to create an edifice of the textile and apparel industry with
state-of-the-art technology, improved manufacturing processes, skilled human resources, best management practices and IT applications for
optimum utilisation of capacities already available as also the emerging opportunities. Incentives offered under the Suvarna Vastra Neethi
2008-13 are as follows:

Capital investment subsidy - Up to. Rs. 25 lakh

Investment by SC/ST/Women/PC/Ex-Servicemen/Minority -Special subsidy up to. Rs. 25 lakh
Entry Tax - Full reimbursement
Stamp Duty - Full reimbursement
Power subsidy - Re. 1.00 per unit
Common infrastructure development for Textile Parks - Up to Rs.1200 lakh
Subsidy for Land/Shed allotted through KIADB/KSSIDC - Up to Rs. 25 lakhs
Subsidy for establishment of CETP - Up to Rs. 500 lakhs
Market development of new designs and products - Up to Rs. 25 lakhs
Assistance for standards and compliances - Up to Rs. 2 lakhs
Strengthening of existing training centers - Up to Rs. 100 lakh
Establishment of new skill development centers - Up to Rs. 150 lakh

The policy takes up a comprehensive strategy covering all sectors relating to the textile and garment industry i.e. Garments, Handlooms,
Power looms, Spinning, Knitting, Processing, Technical textiles, Textile machinery manufacturing. The Government is committed to
support the establishments of Greenfield Textile Parks by providing finances upto Rs.1200 lakh and also provide finance upto Rs. 500 lakh
to set up Common Effluent Treatment Plants in the projects. In addition, the policy offers several incentives for Mega Projects. The policy
defines Textile and Garment units investing Rs.100 crore and above in capital expenditure, in a single project, in Zone-1 and Zone-2, and
providing a minimum of 500 direct employment, as a Mega Project. While the list of special incentives that can be considered for extending
Mega Project, is exhaustive in nature, the Government will offer either one or a combination of incentives on a case-to-case basis. The
likely incentives for Mega Projects are as follows:

Allocation of land for implementing textile/ apparel cluster projects.

Provision of utilities upto the doorstep of cluster projects access roads, water and electricity supply.
Funding support to Greenfield textile/apparel cluster projects
Subsidy on Skill Development and Training.
Reimbursement of expenditure incurred on account of employers contribution towards ESI and EPF through a predetermined
formula.
Single Window Clearance system/Committee for review

Many prominent textile majors have set up their base in Karnataka e.g Gokuldas Exports Ltd, Reid & Taylor, Texport Overseas Pvt. Ltd.,
Himatsingka Linens, Raymond Ltd. etc. Under the Cluster Development Scheme providing infrastructural support for MSMEs in specific
Sector, there are 10 handloom clusters located in Bagalkote, Chitradurga, Dharwad, Udupi, Koppal, Tumkur, Mysore, Bangalore, Kolar,
Gulbarga and Belgaum districts. Further there are industrial MSME clusters for Readymade garments in Bangalore, Silk in Mysore, Jeans
and Garments at Bellary and Powerloom clusters at Bangalore, Belgaum and Gadag.
The State Government has cleared investment proposals worth more than Rs. 6000 crore, providing employment to more than 3.6 lakh
people in the State. Under the Integrated Textile Park Scheme (SITP) of the Ministry of Textiles, Dodballapur Integrated Textile Park,
Banaglore, was inaugurated in February 2009. Under the Apparel Park for Exports Scheme (APES), one project proposal has been
sanctioned to set up an apparel park in Bangalore. Integrated Textile Parks have been proposed in Gulbarga, Davanagere, Bellary,
Ramanagaram, Bagalkot, Mysore, Belgaum, Anekal, Ramnagara, Shimoga, Hubli, and Mangalore districts.
Quantitative restrictions to limit international trade in certain goods have existed for a long time already, but in no sector have they been as
common and broadly applied as in the textile and clothing industries. Likewise, no other sector has seen such a rigid institutionalization of
quantitative restrictions, which in turn have had very wide reaching intended and unintended consequences. In fact, quotas in this sector
have been the common denominator that has shaped the development path of this industry, and many would argue have been the single
most important factor contributing to its worldwide diffusion in recent decades. This chapter tracks developments from the early beginnings
of quantitative restrictions in the textile and clothing sector, through its institutionalization leading to the Multifibre Agreement and
eventual phasing out under the World Trade Organization (WTO) Agreement on textiles and clothing. Trade developments under the quota
regime, and post-quota developments, emphasize the impact that these trade restrictions have had and how once again some countries are
beginning to make use of measures to counter the threat of surging imports.
International trade policy has for many decades utilized quantitative restrictions on imports as a means of achieving specific developmental
outcomes. This form of protection provides a limited shield to local industry against foreign competition, competition which would have
been the case if foreign goods were to compete freely on the domestic market. Quotas differ fundamentally from other policy tools, such as
tariffs, in that they restrict competition from imports irrespective of any direct price considerations. In other words, quotas remove some of
the incentive for foreign suppliers to compete on price notwithstanding the presence of import duties, as quantitative restrictions completely
remove costs and prices from the equation. In tracking developments leading up to the Multifibre Agreement (MFA), and later the WTO
Agreement on Textiles and Clothing (ATC), it should be noted that quantitative restrictions on textiles and clothing violated the original

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word and spirit of some of the basic principles contained in the General Agreement on Tariffs and Trade (GATT).Having entered into force
at the start of 1948, this Agreement contained provisions that directly or indirectly relate to quantitative restrictions.
In the United States (US), early trade restricting measures affecting the textiles and clothing sector were in the form of domestic
agricultural policy that restricted the importation of cotton. This followed a surge in imports, which was threatening prices and price
stability of local cotton producers. The resultant upward pressure on the price of cotton meant that downstream textile and clothing
manufacturers had some of their competitiveness eroded. Later, the US concluded a bilateral agreement with Japan (one of the countrys
major foreign suppliers of cotton and cotton textiles) that would limit the latters exports of textiles to the US for a number of years,
concurrently setting sub-quotas on various specific product categories. In Europe, quantitative restrictions on certain imports went even
further, covering most of the textiles and clothing sector.
Under pressure from various countries, most notably the US, a formal forum was established within GATT during 1961 to deal with the
increasing market disruptions (and threat thereof) in major importing countries. This forum resulted in the conclusion, first of a Short-term
Arrangement Regarding International Trade in Cotton Textiles (STA) note the explicit reference to cotton textiles and pursuant to this,
a Long-term Arrangement Regarding International Trade in Textiles (LTA). The STA, which was adopted by almost 20 countries,
provided for the unilateral imposition of quotas on cotton-based textiles and clothing in cases where the exporting country did not itself
voluntarily and satisfactorily restrict its exports. The LTA, initially covering a five-year period but subsequently renewed in 1967 and 1970,
provided the basis for further, yet more targeted, restrictions. But since both the STA and LTA covered only cotton-based textiles, the
growing trade in man-made fibres remained largely unaffected by these trade measures. Voluntary agreements were nonetheless concluded
mainly between the US and various key suppliers of man-made fibre products, as well as of wool products. These agreements sought to
restrict key suppliers exports to the US and thus limit domestic market disruptions brought about by this surge in foreign competition.
While this approach initially provided a fair measure of relief, its fragmented nature made it an onerous policy tool in the long run. At the
same time, many European countries which until then had benefited from the more limited LTA experienced an increasing inflow of
non-cotton textile imports. The uncertainty associated with the bilateral approach under the LTA likewise appeared to find little favour with
developing countries, some of which had become substantial players in the global textile and clothing industry.
All these developments contributed to the negotiation and subsequent conclusion, in 1973, of the MFA. It came into force at the start of
1974, and expanded the product coverage of the LTA. The Agreement was welcomed by many countries for setting targets for increased
trade through slightly higher agreed minimum growth rates (6 percent per annum against 5 percent per annum under the LTA) and more
progressive liberalization of textile trade. The Agreement also provided for the conclusion of bilateral treaties, which in effect permitted
countries to tailor quantitative restrictions differentially according to their own particular requirements. This demonstrated the MFAs most
significant departure from GATT rules, particularly that of nondiscrimination.
The MFAs first years of existence saw the conclusion of a significant number of bilaterals, mainly between the US and Europe, the chief
quota imposing countries. But many of these agreements went even beyond what the MFA envisaged, with restrictions that differed from
the word and certainly spirit of the MFA. Reasonable departures from the original text became common cause in these bilateral
agreements, eventually spurring quota-restricted (developing) countries into providing a more coordinated response. This eventually led to
the removal of the reasonable departures facility, although little real progress was made beyond nonbinding commitments on the part of
quota-imposing countries.
Over the ensuing years, the time-bound MFA was renewed on various occasions, notably in 1977, 1981 and 1986. In the most recent guise,
the MFAs product coverage was extended (to include, among others, vegetable fibre products), although it also removed provisions that
could have provided the basis for a tightening of existing quotas. Positions around quotas became increasingly polarized, with major
importing countries (such as the US and EU) pressing for a broadening of the MFA, and developing and exporting countries opposing it.
While the latter continued to call for a liberalization of textile and clothing trade, it was only in 1991that versions of what was to become
known as the Agreement on Textiles and Clothing (ATC) negotiated as part of GATTs Uruguay Round trade negotiations were
presented. A final version of the ATC, which set out a definitive plan for the structured removal of quantitative restrictions, was finally
implemented on 1 January 1995.
The abolition of quota regime under the WTO in 2005 and the strong growth recorded by the Indian economy in the last decade has
provided significant opportunities to textile firms to exploit the world market by streamlining their operations. To achieve this objective,
the industry needs to have an adequate raw material base complemented with state of the art infrastructure facilities and skilled manpower
supply. Karnataka is one such place where investors can reap the maximum benefits of all the key resources that go into the textile chain.
Karnataka has entire ecosystem of the textile and garment industry in the country. With its investor friendly policies and proactive approach
in infrastructure creation, the State is an ideal destination for setting base of complete value chain of Textile Sector. Bangalore has a very
strong presence of textile manufacturing units serving the outsourcing need of high-end textile and garment manufacturing firms. The State
is one of the leading producers of cotton, silk and wool which are the key raw materials required for textile manufacturing units. It also has
a long tradition of excellent engineering colleges and research institutes that provide high quality training in chemical engineering, textile
technology etc. In addition, as a state has a well-diversified strong industrial sector, all requisite inputs in the production process are
manufactured within the State.
The garment industries in Karnataka State are concentrated in Bangalore, which houses some of the largest export houses of the country.
Today overseas buyers view Bangalore as an important location for sourcing of garments after Bombay and Delhi. Brand images are being
felt in this region and there is a great potential for production of value added goods. Readymade garment industries are also concentrated in
Bellary district. The units in Bellary are specialized in manufacture of jeans and other leg wears for men. The next place of concentration of

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this industry is Shimoga district followed by Dharwad district as per the information furnished by the Directorate of Industries and
Commerce. There is also a concentration of hosiery industry in Belgaum.
By analyzing the role and size of the textile and garment exporting firms in Karnataka state, it would be worth studying the impact on
exporting firms due to global policy changes. Any impact on these firms, both positive and negative, will have an important bearing on the
state economy, as they contribute substantially to State domestic product and export earnings.

2.

Literature review

Several studies have shown the restrictive effects of the MFA on the exports of developing countries and more importantly, on national and
global welfare (Hamilton, 1990; Martin and Suphachalasai, 1997). Hence, under the GATT Uruguay Round, the gradual phase out for the
MFA was agreed upon. The main objective was to secure the eventual full integration of garments and textiles trade into the rules and
disciplines of the WTO.
A large number of research studies have been carried out on the global and regional impact of trade liberalization, generally and in the
textile & clothing sector. The results, however, show significant variations (Nordas, 2004). Most of the studies show substantial gains in
real income by both developed and developing countries as a result of multilateral trade liberalization.
Majmudar (1996) has argued that while most gains are expected to move in favor of China and India due to economies-of-scale, the low
labor cost countries such as Pakistan, Bangladesh, Indonesia and Philippines are likely to emerge as gainers. In addition, both the US and
the EU may continue to favor certain groups of countries which may retain market shares in individual markets.
After MFA phase out, the competition among the exporters would increase. This calls for huge investment in research and development to
improve the quality and design of the textile and garment products. R&D process is a rare activity in small firms, and thus technology
adoption for them remains incremental or often imitative. This has been explained by the fact that large firms have sufficient resources for
investing in technologies and are financially stable (Wagner & Hansen, 2005).
It is worth emphasizing that MFA elimination has not ended trade restrictions in T&C; it merely did away with the bilateral trade quotas set
by developed T&C importing countries, dominated by the U.S. and the E.U., for exporting developing countries (Feldman, 2009). The
T&C trading system is still substantially restricted by tariffs, subsidies, preferential trade agreements, and other non-tariff barriers.
Gelb (2005) argued that India, Pakistan, Bangladesh, and Vietnam would be able to compete well in some product markets as the major
importers are expected to reduce the risk of sourcing from only one country. He argued that China would be a major beneficiary in the postMFA periods at the expense of most other developing countries. Moreover, countries eligible for duty-free U.S. textile trade preferences
have a potential advantage over some other potential suppliers, depending to a great extent upon beneficiary countries geographical
proximity to the United States as tariffs were not phased out along with MFA quotas.
Using data from US, EU Chinese and other sources, Whalley (2006) showed that the aggregate US and EU imports of clothing and textiles
will have little effect, and equally only small impacts on aggregate Chinese exports of clothing and textiles with a large changes in the
country pattern of trade, and also within more narrowly defined product categories.
The shares of other Asian suppliers in US markets held up well, with the largest falls occurring in preferentially treated suppliers such as
Mexico. On the other hand, Adhikari and Weeratunge (2007) analyzed the 18-19 month period after the MFA phase-out and showed that
the phase-out did not bring drastic changes in the export composition and production structure as envisaged earlier. But countries like
Bangladesh, Cambodia, Indonesia and Vietnam, which benefited from this, whereas majority of countries which survived mainly on
preferential trading arrangements have not been able to take advantage of the safeguards. Considering the U.S. domestic market for the first
two years of post-MFA quotas, Martin (2007) both confirmed and contradicted the experts predictions by arguing that after the end of the
MFA quotas, the global clothing and textile market did grow faster over the last two years than before, but there has not been the
anticipated sharp shift in production to China.
Audet (2007) argued that the elimination of import quotas has exposed the vulnerability of fragmented supply chains and favored countries
able to display an integrated supply chain while it has reduced the attractiveness of outward processing programs and, conversely, increased
the attractiveness of other preferential trade arrangements, such as regional trade arrangements and the Generalized System of Preferences.
The literature focuses global- and national-level impacts of the MFA phase-out on the textile and clothing sector. This study examines the
various challenges that garment exporters in Karnataka are facing and strategies that they have adopted to compete successfully in the
marketplace.

3.

Methodology

The objective of the present study is to examine the impact of the removal of quota on the performance of textile and clothing exporting
units in Bangalore, and to understand their response strategies. The data for the study was collected from a sample of one hundred textile
and clothing exporting units in and around Bangalore city, using a structured questionnaire.
The respondent units varied considerably by ownership pattern. 26.3% of the units were sole proprietorships, 22.1% were partnerships,
45.3% were private ltd., and the remaining 6.3% were public ltd. Thus, most of the respondent units were small units, owned by a small
group of entrepreneurs.

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Internat ional Jour nal of Economy, Mana ge ment and Social Sciences , 2(6) June 2013

Ownership pattern
sole proprietorship
partnership
private ltd.
public ltd.
Total

Frequency
25
21
43
6
95

Percentage
26.32%
22.11%
45.26%
6.32%

Most of respondent units (85.3%) have been operative for more than ten years, and were thus very familiar with the situation prior to
removal of quotas. The remaining 14.7% were started in the shadow of the quota regime.
Duration of business
Frequency
< 10 yrs.
14
10+ yrs.
81
Total
95

Percentage
14.74%
85.26%

The respondent units also varied considerably by turnover. Most of the units (41.5%) had a turnover of less than Rs. 10 crore; 26.4% of the
units had a turnover in the range of Rs. 10 - 100 crore; and 32.1% of the units had a turnover of more than Rs. 100 crore. Many (44.2%) of
the respondents did not reveal their turnover.
Annual turnover
< Rs. 10 crores
Rs. 10 - 100 crores
> Rs. 100 crores
Total

Frequency
22
14
17
53

Percentage
41.51%
26.42%
32.08%

The respondent units varied in the extent to which the exported their products: 25.0% of the respondent units exported only some of their
products, 34.4% of the units exported 50% or more of their products; while 40.6% were 100% export-oriented. Also, 69.9% of the
respondent units exported readymade garments, and 34.9% of the respondent units exported textiles. 57.1% of the respondent units
exported to the European Union, 48.4% exported to the US, and 16.5% exported to other destinations.
Level of exporting activity
Frequency
24
33
39
96

some products are exported

50% of total production is exported
100% exported
Total
Export
Clothing
Textiles

Percentage
25.00%
34.38%
40.63%

Percentage
69.88%
34.94%

Export to
Europe
United States
Other destinations

Percentage
57.14%
48.35%
16.48%

Thus, the respondent units reflected the fragmented, small-scale, and unorganized nature of the industry.

4.

Findings

The primary impact of quota removal was on sales volume. In fact, 67.7% of the respondent units experienced an increase in sales volume
after removal of quotas, while 25.0% experienced no change in sales volume, and 7.2% experienced a decrease in sales volume. Also, there
was a change in the target market: 64.6% of respondent units shifted their target markets to more developed countries.
Effect on export quantum
Frequency
Decreased
7
No change
24
Increased
65
Total
96

Percentage
7.29%
25.00%
67.71%

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Most (53.1%) of the respondents agreed that quota removal had an impact on the mode of export. A portion of the exporters (22.4%)
export their products both directly and also through agents. 13.4% of the exporters directly contact the buyers without making use of any
intermediary.
Mode of export
Via agents
Directly to buyers

Percentage
86.57%
35.82%

The effect of this change in mode of export was either an increase in sales volume (50.9%) due to expansion of markets, or an increase in
profit margin (49.1%) by cutting out the commissions to intermediaries. Many (44.2%) of the respondents did not reveal the impact of
change in mode of export on their business.
Effect of change in mode of export
Increase in profit margin
Increase in sales through expansion of markets
Total

Frequency
26
27
53

Percentage
49.06%
50.94%

The important factors considered by importers in selecting a supplier included pricing (64.6%), delivery (17.7%), certification standards
(10.4%), and infrastructure/production capacity (7.29%). The private limited companies give greater importance to certification standards
than delivery time.
Important factors considered by importers
Infrastructure/production capacity
Pricing
Delivery
Certification standards
Total

Frequency
7
62
17
10
96

Percentage
7.29%
64.58%
17.71%
10.42%

Pricing was identified as the toughest challenge by all the garment exporters. Around 50% of the respondents have also identified obtaining
various certification standards, inadequate fashion forecasts and technology as a major challenge they face after the phase out of quota. The
benefits received by other garment exporting nations, especially China, were also a source of challenge. Adhering to various certification
standards has been identified as a major challenge for the smaller organizations; bigger organizations do not face this problem. The private
limited companies feel the pressure of inadequate fashion forecast as they cater to big labels worldwide. They also consider the quota
removal in China from 2008 as a threat, as China has the capacity to produce very large quantities at a very low cost compared to their
counterparts in India.
The major source of differentiation from competitors was perceived to be pricing (70.8%), followed by delivery (31.3%), and value
addition (22.9%). 80.2% of respondent units customize their product according to import requirements or cultural differences- 77.1% have
an in-house expert team for product design, while 31.3% outsource the product design function.
Differentiating factors
Price
Delivery period
Value addition

Percentage
70.83%
31.25%
22.92%

The most effective promotional tool was perceived to be personal visits (35.1%), involving meeting and negotiating directly with buyers.
Marketing through agents (25.5%) was also perceived to be quite effective. Participating in trade fairs and exhibitions was also effective,
but perhaps better complemented with personal visits. Website/online advertising, perhaps the most convenient tool, is used mainly for
conveying preliminary information, and so was perceived to be less effective. Smaller exporters considered conducting fairs in India more
effective than larger concerns. The larger exporters considered conducting fairs abroad as more effective than the other concerns. 29.5% of
respondents have changed their promotional strategies post-MFA.
Most effective promotional tool
Personal visits
Participating in trade fairs in India
Participating in trade fairs abroad
Online advertising
Through agents
Total

Frequency
33
18
5
14
24
94

Percentage
35.11%
19.15%
5.32%
14.89%
25.53%

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Internat ional Jour nal of Economy, Mana ge ment and Social Sciences , 2(6) June 2013

Most of the respondents (81.1%) had sufficient production capacity to handle demand from the export market, while 16.5% of respondents
were planning for capacity expansion. In particular, 41.7% of the respondents were planning for horizontal/vertical merger as a response to
quota removal.
According to the exporters, Indias strengths include: availability of skilled labour (45.1%), strong raw material base (35.4%), competitive
pricing (28.1%), high quality (24.4%), and to a lesser extent government support (6.1%).
India's strengths
Labour
Raw-material
Price
Quality
Government support

Percentage
45.12%
35.37%
28.05%
24.39%
6.10%

According to the exporters, Indias weaknesses include: inferior/outdated technology (47.4%), supply chain issues/high lead time due to
poor infrastructure (28.2%), labour issues (25.6%), lack of timely government support (11.5%), and higher costs as compared to
competitors (5.1%).
Indias weaknesses
Inferior technology
Supply chain issues/high lead time
Labour issues
Government support
Higher costs compared to competitors

Percentage
47.44%
28.21%
25.64%
11.54%
5.13%

The global challenges faced by the exporters after dismantling of quota were upgrading technology (94.8%), better sourcing (89.6%),
capacity expansion (88.5%), and training the labour force (86.5%).

New global challenges

Upgrading technology
Better sourcing
Capacity expansion
Training the labour force

Percentage
94.79%
89.58%
88.54%
86.46%

The exporters expected government support in terms of setting up of textile parks/zones (61.5%), enabling technology upgradation
(42.7%), and providing fiscal benefits (21.9%).
Government support
Textile parks
Technology upgradation
Fiscal benefits

Percentage
61.46%
42.71%
21.88%

According to the exporters, their perceived competitor countries were China (80.5%), followed by Bangladesh (64.6%), Sri Lanka (41.5%),
and others (below 10%).

China
Bangladesh
Sri Lanka
Indonesia
Malaysia
Pakistan
Vietnam
Hong Kong
Thailand
Turkey
Phillipines
Singapore
Mexico
Cambodia
Myanmar

Percentage
80.49%
64.63%
41.46%
6.10%
6.10%
4.88%
4.88%
3.66%
2.44%
1.22%
1.22%
1.22%
1.22%
1.20%
1.20%

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Int ernational Journal of Ec onomy, Mana ge me nt and Soci al Sc iences , 2(6) June 2013

5.

Conclusion

The results of the study indicate that the primary impact of quota removal on the exporters was in increasing the volume of textile and
clothing exports and expanding their markets, as well as a change in the mode of export, shifting away from the use of
agents/intermediaries, and increasing their profit margins. This has, however, also brought several marketing challenges, including pricing,
delivery, quality standards, and infrastructure/production capacity, especially affecting the smaller players. Thus, it is largely the bigger
players that have benefited from quota removal.
Indias strengths lie in the ready availability of skilled labor, strong raw material base, competitive pricing, and high quality. Indias
weaknesses include inferior/outdated technology, supply chain issues/high lead time due to poor infrastructure, labor issues, and lack of
timely government support. Several global challenges were identified by the exporters. The biggest challenge is that of technology
upgradation - the industry must adopt the latest technology in order to improve quality and productivity and to remain globally competitive.
The government has a major role in facilitating this technology upgradation through the Technology Upgradation Fund (TUF). Another
important challenge is that of better sourcing, to streamline their supply chains in order to reduce costs and lead times. Other important
challenges include capacity expansion to meet the increased demand, and training of the labour force to improve quality and productivity.
Increased competition from other emerging economies is also a major challenge, particularly from China, Bangladesh, Sri Lanka, and
others.

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